Why Government Attempts To Encourage a “Green Economy” Are Almost Always a Bad Idea

Commentaries on economics and technology.
Nov. 14 2011 4:12 PM

Empty Green Promises

Why government attempts to encourage a “green economy” are almost always a bad idea.

Solar panels.
Green-energy policies currently being pursued are not helping the environment or the economy

Photograph by Hemera/Thinkstock.

When Denmark’s new government ministers presented themselves to Queen Margrethe II last month, the incoming development minister established his green credentials by rolling up to the palace in a tiny, three-wheeled, electric-powered vehicle. The photo opportunity made a powerful statement about the minister’s commitment to the environment—but probably not the one he intended.

Christian Friis Bach’s electric-powered vehicle was incapable of covering the 30 kilometers from his house to the palace without running out of power. So he put the electric minicar inside a horse trailer and dragged it behind his gasoline-powered Citroën for three-quarters of the trip, switching back to the minicar when he neared the television cameras. The stunt produced more carbon emissions than if he had ditched the electric car and horse trailer and driven a regular car the entire distance. The story is not uncommon. Under the United Kingdom’s Labor government in 2006, Conservative party leader David Cameron attracted attention for trying to “green” his credentials by cycling to work; the tactic went awry when it emerged that a car trailed him carrying his briefcase.

But environmental hypocrisy in current politics runs deeper than photo opportunities. In Denmark, as across the developed world, politicians are promising that a transition to a greener economy can help to fix the globe’s financial mess. In the United States, President Obama touts “green jobs.” Australian Prime Minister Julia Gillard has introduced a carbon tax to “enable economic growth without increases in carbon pollution.” And David Cameron was elected prime minister in part on a promise to lead the United Kingdom’s “greenest government ever.”

Denmark serves as a useful test of whether these leaders’ preferred policies yield the environmental and economic benefits that they promise. In tune with international enthusiasm for green energy investment, the Danish government intends to expand wind power dramatically by 2020. That is a significant gesture, but since the country is part of the European Union’s emissions-trading scheme, it will mean absolutely nothing for global CO2 emissions. It will simply make coal power cheaper in other EU countries.

Indeed, costly emission cuts in Denmark and elsewhere are likely to lead to a partial relocation of CO2 emissions to more lenient countries, such as China (where production is less climate-efficient), and thus to an overall increase in global CO2 emissions. The EU has reduced its emissions since 1990, but, at the same time, it has increased imports from China, which alone has produced enough emissions to offset those reductions.

Some will argue that we must implement a comprehensive Kyoto-style agreement to cut emissions globally. But, as we saw at the farcical Copenhagen climate summit in 2009, such an agreement is impossible. Nobody expects a deal to emerge from the upcoming climate summit in Durban, South Africa, and with good reason: Even with Democrats in the White House and controlling Congress, the United States could not implement an agreement on climate change, while emerging economies, led by China and India, are unwilling to implement measures that would impede growth.

Danish politicians—like politicians elsewhere—claim that a green economy will cost nothing, or may even be a source of new growth. Unfortunately, this is not true. Globally, there is a clear correlation between higher growth rates and higher CO2 emissions. Furthermore, nearly every green energy source is still more expensive than fossil fuels, even when calculating pollution costs. We do not burn fossil fuels simply to annoy environmentalists. We burn them because fossil fuels have facilitated virtually all of the material advances that civilization has achieved over the last few hundred years.

Politicians in Denmark and elsewhere argue as if this were no longer true and that a transition to a green economy will create millions of new “green jobs.” But, while green-energy subsidies generate more jobs in green-energy sectors, they also displace similar numbers of jobs elsewhere. This is not surprising: Either customers or taxpayers must finance subsidies. Electricity prices will increase, implying a drag on private-sector job creation. If the goal is to create jobs, public investment in other areas—such as the health care—generates stronger, faster employment growth.

To bring the point home, for years Danish politicians have insisted on subsidizing the world’s largest, Danish-based, wind-turbine producer, Vestas, arguing that Denmark wins when other countries spend subsidies on Danish wind-farm technology. But when the Danish Economic Council examined the situation in 2004, it concluded that the country had lost money overall from expenditures on subsidies. More seriously, in today’s tough financial times, the solar and wind industries are downsizing production in expensive countries and shifting employment to cheaper economies. Last year, Vestas dismissed 3,000 employees in Denmark and Sweden.

Many politicians are drawn to photo opportunities and lofty rhetoric about “building a green economy.” Unfortunately, the green-energy policies currently being pursued are not helping the environment or the economy. More likely, they will lead to greater emissions in China, more outsourcing to India, and lower growth rates for the well-intentioned “green” countries.

This article comes from Project Syndicate.

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